Gold price holds above $3,200; bullish bias remains amid trade uncertainty
- Gold price regains positive traction as US tariff uncertainty continues to underpin safe-haven assets.
- Bets for aggressive Fed rate cuts in 2025 keep the USD depressed and also benefit the XAU/USD pair.
- Trump's temporary tariff reprieve improves global risk sentiment and might cap the commodity.
Gold price (XAU/USD) attracts some dip-buyers following the previous day's modest pullback from the record high and trades comfortably above the $3,200 mark during the Asian session on Tuesday. The rapid escalation of the trade war between the US and China – the world's two largest economies – keeps market participants on the edge. Adding to this, the uncertainty over US President Donald Trump's tariffs and their impact on the global economy turn out to be key factors that continue to underpin the safe-haven bullion.
Meanwhile, the US Dollar (USD) struggles to register any meaningful recovery from its lowest level since April 2022 touched last Friday as concerns about the potential economic fallout from tariffs ignited recession fears. Furthermore, bets that the Federal Reserve (Fed) will resume its rate-cutting cycle soon keep the USD bulls on the defensive, and lend additional support to the non-yielding Gold price. However, Trump's temporary tariff reprieve remains supportive of the upbeat market mood and might cap the XAU/USD pair.
Daily Digest Market Movers: Gold price continues to attract safe-haven flows amid rising US-China trade tensions
- Concerns about the potential economic fallout from US President Donald Trump's aggressive trade policies continue to underpin safe-haven assets. Meanwhile, China increased tariffs on US imports to 125% on Friday in retaliation to Trump's decision to raise duties on Chinese goods to an unprecedented 145%. This keeps the Gold price close to the all-time peak touched on Monday.
- The US still imports several hard-to-replace materials from China and the developments seem to have weakened confidence in the US economy. Moreover, heightened concerns over a US recession, along with bets that the Federal Reserve (Fed) would resume its rate-cutting cycle soon and lower borrowing costs at least three times in 2025, fail to assist the US Dollar in registering any meaningful recovery.
- Fed Governor Christopher Waller said the Trump administration's tariffs posed a significant shock to the US economy that might force the US central bank to cut rates to avert a recession. Separately, Atlanta Fed President Raphael Bostic noted that we still have a ways to go on inflation as tariffs could place upward pressure on prices. The Fed is unable to make bold moves in any direction, Bostic added.
- The global risk sentiment improved after the White House announced on Friday that smartphones, computers, and other electronics would be temporarily exempted from Trump’s punishing reciprocal tariffs. Furthermore, Trump said on Monday that he was looking into possible exemptions for the auto industry from the 25% tariffs as companies need more time to transition to US-made parts.
- Trump, however, said that exemptions were temporary and added that he would unveil tariffs on imported semiconductors over the next week. Trump also threatened that he would impose tariffs on pharmaceuticals in the not-too-distant future. This continues to fuel uncertainty, which, along with the underlying bearish sentiment surrounding the USD, lends some support to the XAU/USD pair.
- Traders now look to Tuesday's US economic docket, featuring the release of the Empire State Manufacturing Index. This, along with trade-related developments, might influence the USD and provide some impetus to the commodity. The focus, however, remains on Fed Chair Jerome Powell's speech on Wednesday, which might offer cues about the future rate-cut path and drive the non-yielding yellow metal.
Gold price bulls retain control amid constructive technical setup; the $3,168-3,167 pivotal support holds the key
From a technical perspective, the overnight bullish resilience below the $3,200 mark and the subsequent move up suggest that the recent well-established uptrend for the Gold price is still far from being over. However, the daily Relative Strength Index (RSI) remains close to the overbought territory and makes it prudent to wait for some near-term consolidation or a modest pullback before positioning for any further gains. Hence, any further strength is more likely to confront stiff resistance near the $3,245-3,246 area, or the record high touched on Monday.
On the flip side, weakness below the $3,200 round figure might still be seen as a buying opportunity and is more likely to remain cushioned near the $3,168-3,167 region. The latter should act as a strong base and a key pivotal point for short-term traders, which if broken decisively could pave the way for a deeper corrective slide. Gold price might then fall to the $3,136 intermediate support en route to the $3,115 region and the $3,100 mark.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.